A:

A V-shaped recovery depicts an economic situation where a severe downturn in the markets is met with an equally strong upturn in the markets. The V refers to the general shape a chart forms based on various data, such as unemployment, retail sales, industrial output, the shape of equity indexes or other metrics. Other recession recovery types often mentioned include the L-shape, U-shape, J-shape, W-shape and many others.

An L-shaped recession is a severe type of recession where there is be a prolonged period of flat or minimal improvements in the economy. An L-shaped recession could persist for years, essentially flatlining with years of stagnant growth. A common example of an L-shaped recession was the situation in Japan in the 1990s - an environment where loose lending standards led to a collapse in share prices and property prices. The economy started to rebound around 2003, and the time period leading up to 2003 is often referred to as the "lost decade" for Japan. This period was characterized by large bank failures, near 0% interest rates, rampant homelessness and increased government spending.

A U-shaped recovery is a more normalized recovery to a recession, where the economy gradually grows its way out of the recession. A W-shaped recovery generally starts out as a V-shaped recovery but another economic event may send the economy back down to previous lows which would be followed by another rebound to finish off the W-shape. The middle portion of the W-shape could also represent a significant bear market rally.

For more on recessions, take a look at our article Recession: What Does It Mean To Investors?

This question was answered by Joseph Nguyen.

RELATED FAQS
  1. What's the best investing strategy to have during a recession?

    Figure out how to take advantage of recessions, what assets to buy and which ones to avoid. Recessions are where some great ... Read Answer >>
  2. Why does unemployment tend to rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to have a domino ... Read Answer >>
  3. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ... Read Answer >>
  4. What causes recessions?

    Learn more about possible explanations of recessions in the business cycle, including how individual firms react to changing ... Read Answer >>
  5. When during the economic cycle should I invest in the automotive sector?

    Discover the best time to invest in the automotive sector when the economy is in a recession and interest rates have already ... Read Answer >>
  6. What causes a recession?

    According to the National Bureau of Economic Research (NBER), recession is defined as "a significant decline in economic ... Read Answer >>
Related Articles
  1. Insights

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  2. Insights

    The Best Business To Be In During A Recovery (And Why)

    Where are the best places to be when an economy starts to recover?
  3. Insights

    Top 4 Things To Know About The Last Double-Dip Recession

    The financial media and investors are haunted with the prospect of a double-dip recession. We look to the past to see if a double-dip recession is in our future.
  4. Investing

    Tips For Recession-Proofing Your Portfolio

    Find out what to do when the sun sets on a burgeoning market.
  5. Financial Advisor

    The Top ETFs For a Fast Recovery After a Recession

    Recession and recovery cycles are imminent in the markets. Here are the ETFs, which provide the best performance for a fast recovery after a recession.
  6. Trading

    The 6 Signs Of An Economic Recovery

    For all the talk of whether the economy is recovering or sinking, what should a recovery actually look like?
  7. Insights

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  8. Managing Wealth

    Top 6 Recession Investing Myths

    Find out the truth about recessions and how they impact your portfolio.
  9. Insights

    Industries That Thrive on Recession

    Find out where to turn when looking to invest in a tumultuous market.
  10. Insights

    5 Factors That Could Send The United States Economy Into A Double-Dip Recession

    A decline in consumer confidence and stock market correction could be enough to sink the economy again.
RELATED TERMS
  1. L-Shaped Recovery

    A type of economic recession and recovery that resembles an "L" ...
  2. V-Shaped Recovery

    A type of economic recession and recovery that resembles a "V" ...
  3. W-Shaped Recovery

    An economic cycle of recession and recovery that resembles a ...
  4. U-Shaped Recovery

    A type of economic recession and recovery that resembles a "U" ...
  5. Economic Recovery

    A period of increasing business activity signaling the end of ...
  6. Jobless Recovery

    An economic recovery, following a recession, where the economy ...
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center